Natural Gas Gains After Forecast Shows Colder February Weather

Jan. 31 (Bloomberg) -- Natural gas rose for a second day in
New York on speculation that government weather models showing
colder weather next month will spur heating-fuel demand.

Gas gained 0.1 percent after the Global Forecast System
model run by the National Oceanic and Atmospheric Administration
showed Midwest temperatures over the next two weeks will be
lower than predicted earlier today. Gas had dropped as much as
2.8 percent after a government report showed a smaller-than-forecast decline in U.S. stockpiles.

“The model came in colder across the board,” said Teri
Viswanath, director of commodities strategy at BNP Paribas SA in
New York. “We probably won’t see the cold weather linger. It’s
important for the market in that there is still hope that
heating demand will help lower inventory levels to more
manageable levels in advance of the summer injection season.”

Natural gas for March delivery rose 0.4 cent to settle at
$3.339 per million British thermal units on the New York
Mercantile Exchange. Trading was up 44 percent from the 100-day
average at 2:52 p.m. Gas futures dropped 0.4 percent in January,
the third straight monthly decline.

March $3.50 calls were the most active gas options in
electronic trading. They were 0.1 cent lower at 5.8 cents per
million Btu on volume of 1,424 contracts as of 3:23 p.m. Calls
accounted for 57 percent of options volume.

Gas futures oscillated between gains and losses throughout
the session as the changing weather outlook spurred speculation
that demand for the heating fuel would be stronger, while the
stockpile report showed an expanding surplus.

Next Week

The updated models showed even colder weather for the next
five days and showed below-normal temperatures for the Midwest
next week, Viswanath said. About 50 percent of U.S. households
use gas for heating, EIA data show.

Earlier forecasts indicated that below-normal temperatures
in the eastern two-thirds of the U.S. would be replaced by
normal readings next week, according to Commodity Weather Group
LLC in Bethesda, Maryland.

Williams Partners LP delivered a record amount of gas on
the Transco interstate pipeline to the Eastern Seaboard last
week because of bitterly cold weather.

Volume rose to 10.4 million dekatherms on Jan. 22,
surpassing the previous peak of 9.7 million set early last year,
the company said in a statement today. Transco also set a three-day delivery record from Jan. 22 to Jan. 24 at an average of 9.9
million a day, the company said. Volume on the 10,000-mile
pipeline system extends from South Texas to New York,

Stockpile Report

U.S. inventories fell 194 billion cubic feet in the week
ended Jan. 25, the Energy Information Administration said in
today’s report. Analyst estimates compiled by Bloomberg showed a
drop of 204 billion and a survey of Bloomberg users predicted a
decline of 201 billion. The five-year average change for the
week is a decrease of 178 billion cubic feet.

A supply surplus to the five-year average rose to 12.2
percent from 12 percent the previous week, according to the EIA,
the statistical arm of the Energy Department. A deficit versus
year-earlier levels widened to 6.7 percent from 5 percent.

The supply glut versus the five-year average has fallen
from a six-year high last March, as a hotter-than-normal summer
and decade-low gas prices spurred record demand for the fuel
from electricity generators.

Last year was the warmest in records going back to 1895 for
the 48 contiguous U.S. states and the second-worst for weather
extremes including drought, hurricanes and wildfires, according
to the National Oceanic and Atmospheric Administration.

Record Output

Natural gas production in the lower-48 states rose to an
all-time high in November as more of the fuel was pumped from
shale formations in the Northeast and two gas plants returned to
full production in Wyoming, the EIA said in a monthly report
today.

Gross gas output from the region increased 0.6 percent to
73.88 billion cubic feet a day from a revised 73.47 billion in
October, according to the EIA-914 report.

U.S. marketed output will increase 0.9 percent to an all-time high of 69.94 billion cubic feet a day in 2013 after
increasing 4.8 percent to 69.19 billion last year, the EIA said
Jan. 8 in its monthly Short-Term Energy Outlook.

The number of rigs drilling for gas totaled 434 last week,
down 46 percent from a year earlier, according to Baker Hughes
Inc. in Houston.

The boom in oil and natural gas production helped the U.S.
cut its reliance on imported fuel. America met 84 percent of its
energy needs in the first 10 months of last year, government
data show. If the trend continued through the end of 2012, it
would be the highest level of self-sufficiency since 1991.